To resolve splits among the federal appellate courts concerning the proper test for standing to bring false advertising claims under the Lanham Act, the Supreme Court of the United States granted Lexmark International, Inc.’s petition for a writ of certiorari in Static Control Components, Inc. v. Lexmark International, Inc. (697 F.3d 387 (6th Cir. 2012)). In that case, the U.S. Court of Appeals for the Sixth Circuit ruled, among other things, that Static Control Components, Inc. had standing to bring a counterclaim alleging that Lexmark “falsely informed customers that [Static’s] products infringe Lexmark’s purported intellectual property.…” Static originally filed its counterclaim in response to Lexmark’s allegations that Static had infringed patents relating to the ink cartridges used in Lexmark’s laser printers (claims that ultimately were not successful). The Sixth Circuit held that although Static was not Lexmark’s competitor, it had standing to bring this false advertising counterclaim under the “reasonable interest” standard.
The Supreme Court will decide whether standing to bring false advertising claims under the Lanham Act should be analyzed through (1) a version of the “reasonable interest” test followed by the Sixth and Second Circuits; (2) the Supreme Court’s antitrust standing factors, which are considered in false advertising cases by the Third, Fifth, Eighth and Eleventh Circuits (factors established in Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983) (AGC)); or (3) the “categorical” test embraced by the Seventh, Ninth and Tenth Circuits (e.g., in Waits v. Frito-Lay, Inc., 978 F.2d 1093 (9th Cir. 1992), cert. denied, 506 U.S. 1080 (1993)).
The reasonable interest test requires a claimant to show only the following for standing: (1) a reasonable interest to be protected from false advertising and (2) a reasonable basis for the belief that the interest is likely to be damaged by the alleged false advertising. Over 30 years ago the Sixth Circuit adopted this test for standing to bring a false association claim. Frisch’s Restaurants, Inc. v. Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642 (6th Cir. 1982). More recently, the Second Circuit repeated the reasonable interest test language in holding that the plaintiff had sufficiently pleaded standing to bring false advertising claims. Famous Horse, Inc. v. 5th Ave. Photo, Inc., 624 F.3d 106 (2d Cir. 2010).
Hoping to obtain dismissal of the counterclaim, Lexmark argued for the categorical test, which is the most restrictive test of the three. This test restricts standing to actual competitors making false advertising claims, which are viewed as principally anticompetitive. In contrast, because false association claims can benefit the public by preventing the deceptive use of another party’s trademark, no direct competition between the parties is required for those claims. The Sixth Circuit, however, found no reason to distinguish between standing to bring false advertising claims versus trademark infringement or other false association claims. Using the reasonable interest test from Frisch’s Restaurants, it held that Static had made sufficient factual allegations under that test to make out its false advertising claim.
The Static Control court also considered the AGC factors borrowed in false advertising cases by the Third Circuit in Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc. (165 F.3d 221 (3d Cir. 1998)) and also used by the Fifth, Eighth and Eleventh Circuits. The Sixth Circuit ruled that although this test purported to be a refinement of the reasonable interest test, this modification “unnecessarily complicat[ed] the inquiry,” and it declined to extend the Third Circuit’s “conflation of the reasonable-interest test with the AGC factors.” Although the Sixth Circuit speculated that Static might have prevailed under the AGC test within the context of false advertising, if not antitrust, it ruled that binding precedent within the circuit mandated the application of the reasonable interest test as set forth in Frisch’s Restaurants to standing under Section 43(a)(1)(B) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B).
The Supreme Court’s ultimate ruling not only will resolve a decade-long dispute between Static and Lexmark, it will set the tone for how intellectual property owners interact with those they believe have infringed their rights. If the Supreme Court adopts the more expansive reasonable interest test, would-be plaintiffs like Lexmark would do well to mind their public allegations if they do not wish to risk counterclaims for false advertising. Conversely, a more restrictive standing requirement like the categorical test would limit false advertising claims to direct competitors. Thus, the effects of the Supreme Court ruling in this federal case could permeate standing to bring state-law claims as well. With three differing and seemingly mutually exclusive standards in play, the Supreme Court’s ruling could constitute a boon or a blow to either plaintiffs or counterclaimants. The case is scheduled to be argued in June 2014.
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